Oct 26, 2024
Long before he was making investments in startups on ‘Shark Tank,’ entrepreneur Kevin O’Leary said his mother was busy making similar moves in the stock and bond markets.
In a Facebook post from 2022, he shared that Georgette O'Leary deployed 10% of her paycheck into large-cap dividend-paying stocks and corporate credit notes back in the 1960s.
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No one knew about this vast nest egg and O’Leary revealed he’d only discovered it after she’d passed away in 2008.
“She’d hidden it from both of her husbands,” he said in an interview posted to YouTube. “It was amazing. Dividend-paying stocks and corporate credit over 50 years — you can’t find [anything] that beats that.”
The Canadian tycoon has often credited his mother for teaching him how to save and invest. However, her focus on dividend-paying stocks and corporate credit, rather than venture capital, highlights how lucrative a low-risk, long-term horizon strategy can be.
Here’s how savvy investors use these two asset classes to enhance their portfolios.
Dividend stocks
Investment firm Nuveen took a look at historical stock performance from 1930 to 2023 and found that dividend stocks outperformed stocks that do not pay a dividend.
In fact, dividend growth stocks, ones that consistently hiked dividends, outperformed all others, based on its analysis.
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“Dividend growth stocks have provided an attractive combination of earnings and cash flow growth potential, healthy balance sheets and sustainable dividend policies,” said their report.
This is, perhaps, why many savvy investors focus on dividend-paying stocks. In fact, the top five largest holdings in Warren Buffett’s portfolio all pay dividends.
Like Buffett, you could assemble a portfolio of blue-chip dividend stocks with robust profitability, or you could simply invest in a fund that tracks the highest-quality dividend stocks.
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL), for instance, currently offers exposure to over 66 companies that have consistently hiked dividends for at least 25 years — with many hiking for 40 years.
The fund offers a relatively modest 2.25% dividend yield, yet it has delivered 11.6% compounded annual growth since its inception in 2013.
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For those looking to replicate Warren Buffett and Georgette O'Leary’s strategies, this fund is a convenient option.
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Corporate credit
Unlike dividend stocks, corporate credit doesn’t get much attention. However, rising interest rates in recent years has changed that.
According to Stanford, investment firms such as Vanguard, Hargreaves Lansdown, Invesco, and Janus Henderson, have recently introduced corporate bond funds for retail investors due to rising demand for this asset class.
This could be because of attractive yields. As of September 2024, AAA-rated corporate bonds offer an average yield of 4.68%, according to the Federal Reserve. That’s much higher than the dividend yield mentioned earlier.
Investors looking to add this asset class to their portfolio could consider the SPDR® Portfolio Corporate Bond ETF, which tracks investment-grade bonds with at least a Baa3/BBB- rating and, as of this writing, offers a yield to maturity of 4.93%.
A combination of high-quality corporate bonds and dividend stocks, patiently held for decades like Georgette O'Leary, could help you build wealth.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
